Stepping Out

UAE, 1 Jan 2008

In the Middle Ease workplace, the balance of power has shifted. For the first time, employees are in a strong enough position to demand, and get, better remuneration.`

As the GCC experiences unprecedented growth, employment opportunities in the region are exploding. There is a strong demand for talent in nearly all sectors, from construction to IT to finance. At the same time, recruitment agencies say, job seekers – especially in the mid- to high-level job market – are willing to come here to be a part of that growth despite the region’s high inflation. The result: employees are demanding higher salaries and employers have no choice but to pay them what they ask.

“Salary expectations are higher now and what’s being offered is not keeping up. It’s not necessarily just that the rents are pushing up the bases of salaries, but expectations themselves are higher,” says Tel Rashed, Middle Ease and Africa regional manager for SpenglerFox, an executive search and HR consultancy. “People want more … They feel they’re worth it. They know they’re in demand.”

GulfTalent, a Dubai-based recruitment website, recently conducted a survey of 18,000 professionals in the GCC and found that average salaries in the region rose by 9 percent in the 12-month period to August 2007. That surpasses the rises of 7 percent and 7.9 percent for the same periods in 2005 and 2006 respectively. The drivers for pay increases include spiraling living costs, large pay hikes in the public sector, the easing of employment transfer rules for expatriates, a booming economy in the Indian subcontinent, and the decline of the dollar, according to the report. “For the first time in the Middle East, the balance of power is shifting from employers to employees,” the survey report reads.

Oman registered the biggest jump in pay, from 5.6 percent last year to 11 percent this year. There are two main reasons: first, expatriate employees are no longer required to obtain permission from their employers if they wish to switch jobs. Second, a 15 percent pay rise for all public sector employees went into effect in January 2007. This was particularly significant in Oman because it relies on nationals in its private sector more than any other GCC state.

The UAE and Qatar, which have the highest inflation rates in the GCC, again registered big pay rises. In the UAE, salaries rose by 10.7 percent, compared with 10.3 percent last year. In Qatar, they increased 10.6 percent, only slightly lower than last year’s figure of 11.1 percent. Qatar pays relatively well to attract professionals, especially given expatriates’ preference for Dubai or Abu Dhabi. In the remaining GCC countries, Bahrain salaries rose by 8.1 percent, compared with 6.4 percent previously, Saudi Arabia’s rose by 7.7 percent (6.5 percent). Kuwait, the only country that removed its peg from the dollar, remained steady at 7.9 percent.

Favored sectors

Across the GCC, sectors enjoying the highest pay rises were construction, banking and energy. Because of the real estate boom and rapid infrastructure growth, professionals in the construction sector received an 11.1 percent average salary increase. In banking, the average raise was 9.8 percent, due to the expansion of regional banks and the entry of new players. Finally, there was a 9.7 percent salary increase in the oil and gas sector – not surprising considering the record price of oil and a worldwide shortage of skilled professionals. In other sectors, there were also increases, though not quite as high. The next biggest raises were in retail and FMCG (8.7 percent), followed by IT and telecoms (8.4 percent). Trailing behind were healthcare and education, at 6.3 and 6 percent, respectively, though increases in these sectors were much higher than in previous years.

In terms of job categories, engineers and finance professionals received the biggest pay rises, followed by human resource specialists. The 10.5 percent increase for engineers reflects the strong demand for technical expertise. The finance sector’s 10.2 percent rise comes as a result of banking expansion and the upsurge in Islamic banking business. Ironically, as employers struggle to recruit and retain talent, the salaries of HR professionals have increased an average 9 percent.

GCC countries are trying to increase the talent pool in several ways, including introducing training programs for nationals, bringing in well-known educational institutions, and creating new schools and universities. The development of knowledge-based economies is now a top priority for many of the GCC governments.

“You need the right talent for these governments and economies to grow to where they want to be,” says Nessrine Salah, a consultant with the Dubai office of executive search firm Korn Ferry. “The economies across the Gulf are addressing the need, the requirement for such talent, and some of them have actually provisioned for it as well.”

GCC states, still highly dependent on foreigners in the workforce, are investing in training and educating their citizens. In October, Qatar hosted a three-day GCC Labor Market Symposium during which experts and policy-makers discussed ways to develop education, improve skills and generate new job opportunities for GCC nationals.

In Qatar, we have realized that our most important asset for the country’s sustainable development is human resources – in whom knowledge is the best investment,” said Sheikh Hamad bin Jabor Al Thani, director general of Qatar’s General Secretariat for Development Planning. “Developing an economy which is knowledge-based is something we are championing as a mechanism for providing stability and direction to the region’s labor market.”

Bridging the gap

Among those who attended the symposium were representatives from the World Bank, the International Labor Organization, the GCC General Secretariat and Ministries of Labor and Social Affairs. They made recommendations in four areas: education and training; expatriate labor force and nationalization of jobs; labor legislation; and labor market information systems. The recommendation report says that GCC countries should “bridge the gap between private and public sector incentives and benefits.” It also suggests that job nationalization plans and programs be continuously modified in accordance with latest development in education and labor market demands.” In addition, it emphasizes the importance of implementing foreign workforce rights and supporting the role of women in the workforce.

Developing education seems to be the top priority. Countries like Qatar and the UAE are making concerted efforts to open satellite campuses of established Western universities. In Qatar’s Education City there are branches of Carnegie Mellon, Georgetown, Texas A & M, Virginia Commonwealth School of the Arts and Weill Cornell Medical College. Abu Dhabi has recently set up branches of the Sorbonne and INSEAD, and will soon add New York University.

In the meantime, however, the GCC countries inevitably have to look abroad for talent. An estimated 56 percent of the workforce in the Gulf is expatriates. “There are a lot of projects coming, institutions opening up, and with that you require talent, not necessarily just from the region, but internationally as well, to make up for that,” says Salah, of Korn Ferry. “Employers are not oblivious to the inflation costs and they’re fully aware when they attract such talent to the region.”

Several factors have made hiring people more expensive. The rise in the cost of living is one. In Qatar and the UAE, employees spend about one-third of their income on rents, according to the GulfTalent report. Expatriates used to come to the Gulf to save money, but that isn’t the case anymore. In the UAE, 41 percent of workers are unable to save. While in the past, inflation was largely confined to Qatar and the UAE, it has recently spread to other GCC states. In Oman, for example, rents increased by almost 30 percent over one year.

Substantial pay hikes in the public sector have had a knock-on effect on salaries in the private sector. Governments say they are compensating citizens for the rising cost of living. In the UAE, there was a 20 to 30 percent increase last year, while this year a whopping 70 percent salary hike was just announced. In Qatar last year, the government initiated a 40 percent raise for Qatari nationals and a 20 percent raise for expatriates.

Retaining employees is harder now that restrictions on changing jobs have eased due to pressure from international labor organizations and human rights groups. Oman, for example, has dropped the requirement for employers to provide a “No Objection Certificate” (NOC) to employees wishing to resign. In the UAE, professionals working in the free zones no longer require an NOC.

Outside factors

The Gulf is heavily dependent on Asian expatriates, in whose home countries salaries are rising fast. According to the 2007 Asia Pacific Salary Increase Survey published by human resource consulting firm Hewitt Associates, Sri Lanka reported the highest average salary increase, at 15.3 percent. The Philippines, which also provides a large portion of the GCC’s labor market, reported an 8.2 percent hike.

“People from the Indian subcontinent are much more demanding on salaries, and they’re even returning to their homeland, where they can earn same on a lower cost base,” says Rashed, of SpenglerFox. “Even with promotions and higher salaries being offered, there are executives and middle management from the Indian Sub-continent turning them down.”

Finally, the decline of the US dollar has contributed to the end for companies to increase salary packages. Because Gulf currencies are pegged to the dollar, the value of Gulf salaries in foreign currency terms has decreased. Although the GCC countries have been under increasing pressure to drop the peg to the dollar, they recently agreed to maintain it after a two-day summit on the issue. Kuwait is the only GCC state to have dropped the peg.

Yet, with all of these dissuading factors, HR consultants say that people are still seeking out opportunities in the Gulf. “It is still attractive and it’s still very much a pull factor coming to the region.” Rashed says, “The main trends are that the economies have grown, there are more opportunities, word has spread…There is a momentum that’s gathered and I think we have yet seen the end of it.”

Another trend that has emerged is an improvement in the quality of the candidates applying for jobs. “Five to six years ago, if one of our consultants presented a client with a candidate that matched 70 percent of the qualifications, the client would still consider it. Now, it has to match 90 percent, or the client won’t even consider it,” says Bernie Luby, legal & communications manager for Clarendon Parker.

Luby says such events as the Asian games in Qatar and the increasing international stature of countries like the UAE have influenced people to come here. “Certainly we’ve seen a big, big improvement in the quality of candidates in Qatar since the Asian games,” Luby says. “Those kinds of things have a good knock-on effect in terms of attracting candidates.

There is certainly a need to attract job seekers in almost every sector. Public and private healthcare providers in the Gulf are facing an acute staff shortage, and the output of new national medical graduates cannot keep up. At a time when demand for petroleum is high, the energy sector is projected to lose 40 percent of its skilled workers to retirement over the next ten years. There is also a demand for more construction laborers, particularly in the UAE where a government amnesty program for illegal laborers produced an overwhelming response.

It isn’t just salaries that have to keep up with the growth, but also education, training, and labor legislation. But recruiters think foreigners will continue to come. “The shortage is definitely there and that comes with any other growing economy … but there is also an attraction that people are willing to come here and be a part of that,” says Salah, of Korn Ferry. “Dubai and the region are in a place where they can now position themselves with other main international hubs around the world.”